Techno Electric - Powering Ahead

TECHNO ELECTRIC & ENGINEERING COMPANY LTD

The power sector is transforming with large investments in various govt initiatives. T&D is on focus as well as renewable energy sector. The next few years may see a thrust in this business.

T&D INDUSTRY

• India's energy consumption has nearly doubled since 2000

• Power demand in India is expected to grow from 120 GW to 315-335GW by 2017 - as per McKinsey study.
• Coal availability will increase with coal mines leases renewed and forest clearances granted. 10 mines are to be added by Mar 2016.
• The government is expecting an investment of about US$ 250 billion by 2020. Renewables are set to get US$ 100 billion, while the transmission and distribution segment will get US$ 50 billion, each. Another US$ 60-70 billion will be for power generation, including for restarting stalled projects and for new ones while US$ 5-6 billion is set aside for energy efficiency projects. Besides, US$ 20-25 billion investments would come for associated infrastructure required in replacement of old and out-dated equipments, among others.
• Key focus area is integration of renewable energy to the grid
• Discoms have an accumulated loss of 3.8 lakh crores and debt of 4.4 lakh crores (as of Mar 2015)
• UDAY scheme entails the state govts to take over the debt and future losses (in a staggered manner) from the Discoms
• Government plans to roll out green energy corridor’ project at an estimated cost of INR 43000 cr to facilitate the flow of renewable energy into the National Grid.

• Renewable power has been declared as a priority sector for bank lending from 2015

THE COMPANY

• Leaders in EPC contracting in power sector
• Spread across entire power sector value chain - generation and T&D
• Co's forte is 765KV substation projects besides distribution projects

 

• 215 cr is the sale proceed for 44.45 MW. 4.83 cr / MW sale price. 162.9MW of wind power capacity remaining.
• Promoter has 58% stake in the company
• Mutual funds hold 17.2% and FIIs 5.4%
• The co is involved with more than 50% of both NTPC and Power Grid's projects; it has relationships with 1500+ vendors
• One of the first few T&D contractors, who have teamed up with Chinese player Rongxin to participate in STATCOM projects. Have first mover advantage in STATCOM space in India.
• Govt plans to install 50 STATCOMs in the next 3-5 years with a total spend of 8000 cr.
• In 2013, the Patran transmission project was completed completely on supplier credit
• EPC division produces 92% of the revenues
• Co has a working capital cycle of 35 days vs 66-182 days of competitors
• The Ministry of Power has planned to provide electricity to 18,500 villages in three years under the Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY).
• A few Ultra Mega Power Projects of about 4,000 MW capacity each are in the offing
• Power Grid Corporation of India is to build sub transmission system of 220/132kV in 6 North East States at an estimated investment of Rs 15000 cr over a period of 3 years. Already bagged order to the tune of Rs 170 Crores to build 400 kV GIS substation at Assam under World Bank funded NER Power System Improvement Project.
• Got an order worth Rs 600 cr for substation package at Chittorgarh, Tuticorn, Ajmer and Bikaner associated with Green Energy Corridors: Inter-state Transmission Scheme (ISTS)
• Order book at end of Mar 2016 is 2,600 cr, 69% of which is from PGCIL
• Co has a zero penalty record resulting in realization of retention money within 6 months of project completion
• During 2015-16, around 28,000 ckm (circuit kilometre) of transmission lines were commissioned against 22,000 ckm last year. This is 118% of the annual target set and also the highest ever for a single year.

DISCLOSURE: I currently hold the stock.

Sagar Cement - Cyclical Upturn

Sagar Cement (SC) is likely to be one of the key beneficiaries of the huge development in Andhra and Telengana in the next few years.

Demand Scenario
* Amaravati, is planned over 217 sqkm and would require an investment of 4 lakh crores (ref: www.thehindu.com/opinion/op-ed/telangana-rising-amaravathi/article7271810.ece). Telangana already has over 24,000 cr of infrastructure projects under construction. The govt has cleared lift irrigation projects worth 35,000 cr.
* New high-speed rail line announced between Amaravati and Bengaluru
* New stable governments in TN & Kerala
* Huge investments planned in infrastructure projects like the proposed East Coast Economic Corridor, Dedicated Freight Corridor, Diamond Quadrilateral High Speed Rail and National Waterways.
* Decision to use cement instead of bitumen for a large number of big road projects

 Investment Plan of the Govt related to infrastructure:

Capacity at strategic locations:
3 MTPA of cement and 2.1 MTPA of clinker at Nalgonda, Andhra PradeshAcquired BMM Cements in Sep 2014 with 1 MT cement and 25MW captive power plant at Anantpur, AP at an EV/ton valuation of $87/ton

Sales is well spread geographically, tough majority comes from AP & Telangana.

BMM Cements had 3000 acres of land. In Dec 2015, BMM AP govt approved a 20 year mining lease for 1200 acres containing limestone reserves of 155 million tons. This provides raw material guarantee.
The company has setup rail siding to reduce transport cost. 20% of transport to move to rail thereby increasing operating margins.
The current capacity utilization is at 56% leaving ample scope for increasing utilization. BMM Cements also had a captive power plant of 25MW capacity. Access to captive power will also reduce operating cost. With the completion of the acquisition, SC will consolidate results from Q1FY17.

Financials:
The stock is available at a market cap of around 1200 cr at a PE of 23. The current replacement cost of cement is about 800 cr/mtpa

Risks
* Aggregate demand does not pick up due to delay in infrastructure spending or lack of turnaround in housing sector
* Adverse Govt policy related to price ,specially for low cost housing projects
* Spike in input costs

DISCLOSURE: I hold the stock and other cement stocks.

Stock Update: Sintex

Sintex has made an announcement to the exchanges today that reads as follows:

Sintex Industries Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on May 19, 2016, inter alia, to consider various financing options for a fund raising by the Company through the issuance of foreign currency convertible bonds and/or non - convertible debentures in and/or outside India and to form a committee of directors ("2016 Securities Committee") to implement such fund raising, including deciding the mode of issuance and nature of securities to be issued. It is also intended that subject to appropriate market conditions, the 2016 Securities Committee will open the offering of relevant securities and, subject to appropriate demand, decide the terms of the issuance of the securities (including pricing) on May 19, 2016.

Further, the Trading Window of the Company pursuant to SEBI (Prohibition of Insider Trading) Regulations, 2015 read with Code of conduct to regulate, monitor and report trading by insiders of the Company will be closed for trading of Company's equity shares from May 16, 2016 to June 01, 2016.

It basically means that they are planning for FCCBs all over again. It seems that they did not learn the lessons of 2008 well enough.

My interview on Sharebazar

The sharebazar app has published my interview yesterday.

Part I - You can read it from the link here.

Part II -  You can read it from the link here.

You can 'continue as guest' on the app / site and read the interview without installing the app (in case you don't want to).

Apar Industries - Poised for growth

Apar Industries is involved mainly in the power ancillary business - Conductors, Specialty Oils (mainly transformer oils) and Cables.

Conductor Segment
• CO generates 45% of revenues from conductors
• Apar has a market share of 23% in the domestic market
• One of the top five manufacturers of conductors in the world. Largest exporter of conductors from India.
• Estimated conductor market size in India is 7500 cr growing at 13%
• First turnkey project for High Temperature Low Sag (HTLS) conductors was successfully executed. It is a higher margin product compared to conventional conductors.
• Co is expecting a growth from 2% of revenues to 7.5% of revenues in FY16 in HTLS
• Co is expanding capacity by 30,000MT. Commercial production is to start by September 2016

Specialty Oils
• Domestic market share of 45% in transformer oils
• Fourth largest transformer oil manufacturer in the world and exports to 100 countries
• This segment is dependent on crude prices. Fall in prices depresses topline revenue.
• Shift in demand to 765KV & 1200KV transformers driving demand for higher voltage transformer oils
• Co has 2 manufacturing units - Rabale (222,000 KL) & Silvassa (220,000 KL)
• Co has setup a R&D center in Rabale
• Commissioning a new plant at Sharjah which will start production by Q3 FY17
• Tie-up with ENI of Italy from 2007 to produce auto lubricants

Cables
• Co has 2 manufacturing sites in Umbergaon & Khatalwada - Gujarat
• Domestic market sales is 78% and exports comprises of 22%
• Co moving away consciously from HT LT cables due to low margins and moving into Elastomeric & E-beam cables
• National Optical Fibre Network (NOFN) will create a network connecting all gram panchayats
• 3G & 4G rollout will also add to the requirements

Financials
Market Cap.: 1,767.58 Cr.
Current Price: 459.15
Book Value: 196.60
Stock P/E: 20.52
Dividend Yield: 0.76%
Face Value: 10.00
52 Week High/Low: 541.95 / 321.00
Dividend Payout Ratio: 28.14%
Debt to equity: 0.78
Price to book value: 2.34
Sales growth 5Years: 20.19%
Profit growth 5Years: -7.16%
OPM: 6.19%
NPM last year: 0.96%
Return on assets: 7.97%
Return on equity: 7.66%
Return on capital employed: 18.72%

Risks

• A delay in power distribution sector turnaround may impact the profitability of the company.
• Exports may get impacted due to volatility in currencies
• Speciality Oils are derivatives of crude hence any sharp price movement in crude can impact the company

Opportunity
With a turnaround in the power distribution business and possible benefits from the UDAY scheme, all the segments are likely to benefit. Apar has a good potential to benefit from this trend.

Company website for Annual reports and Concall transcripts - www.apar.com/financials.php
Screener Financials - https://www.screener.in/company/APARINDS/


Disclosure:- I am not a SEBI registered research analyst. This is a chronicle of my personal investment thoughts and NOT a buy/sell recommendation. Please do you own due diligence before investing.